Author: Minnie Arwood

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How to play the new electric economy

For a certain sector of the economy the past week has been electric.

Item 1: Tesla (TSLA) CEO Elon Musk polls his Twitter followers if he should sell his Tesla shares. They say yes. TSLA tanks on the news and Musk loses $50 billion. Then Musk sells 5.2 million shares or $5.8 billion of stock (as of Friday.) Tesla shares rally. Musk is still the richest man in the world.

Item 2: On Tuesday, electric truck maker Rivian goes public. Its stock soars 29{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in the biggest IPO since the company formerly known as Facebook debuted in 2012. Rivian’s (RIVN) market value of $100 billion is bigger than Ford’s or GM’s.

Item 3: Also on Tuesday, Hertz, which had its IPO this week, confirms it is going to buy 100,000 Teslas, highlighted in an ad campaign, “Let’s Go!” featuring Tom Brady.

So the week might sound kind of bananas but in this quarter of the business universe, that’s actually pretty much SOP. It’s also the case that EVs, Elon and all things electric aren’t fringe anymore. They’re a massive, rapidly growing and increasingly core part of our world. This week’s New Yorker cover pretty much sums it up — Don Quixote looking to tilt a cluster of giant wind turbines. You don’t want to fight this.

Welcome then to the new Economy Electric.

What do I mean by that? Simply that there is a revolution happening right now that’s transforming all businesses, which use engines that burn fossil fuel, and forcing them over to electric power. It’s begun with cars, (though we’re still early days at least in the U.S.) “EV sales have been skyrocketing over the last couple years,” says Ram Chandrasekaran, an EV analyst at Wood Mackenzie.

“In the first three quarters, we’ve already exceeded all of 2020 sales. It’s been an exceptionally strong year. 70{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} are coming from China and Europe. In China and Europe they’re firmly in the mainstream now. In the U.S., EV sales have been lagging compared to China and Europe around 6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} or so,” he said. That will change.

And there’s everything else. Like motorcycles, boats, and some day planes and all forms of transportation. And then there’s generators, farm tractors and so on. It is a massive shift and it’s coming right now.

At this point — Rivian notwithstanding — it’s mostly, one man, one company and one stock: Elon Musk and Tesla. So much has been written about Musk and Tesla, I’ll just boil it down to this: Musk is a visionary. And Tesla is groundbreaking. Those two statements are unassailable and are immutable regardless of what Musk does or what happens to the company, car or stock going forward.

Certainly the market has more than validated this. Beyond the fact that Tesla has cumulatively sold more than 2 million cars, consider that Musk, the personification of the electric revolution, is worth some $294 billion, (way richer than Jeff Bezos — $200 billion), and up $124 billion this year. And of course Musk’s vision and strategy encompass much more than just Tesla, which is an element of an electric ecosystem he’s building including SolarCity and a distributed power grid.

Tesla’s trillion dollar market capitalization — the most valuable car company on the planet — is of course tough to justify. “I don’t want to make any serious comment about Tesla’s market cap — it being higher than the next seven or eight automakers combined is somewhat comical,” says Chandrasekaran. But he adds: “That’s how things are sometimes.” (It’s ironic that Tesla is on this kind of trajectory, while GE, a company rooted in the history of humanity’s taming of electricity, is now a shadow of its former self and being broken up.)

FILE - Tesla and SpaceX Chief Executive Officer Elon Musk speaks at the SATELLITE Conference and Exhibition in Washington on March 9, 2020. After making a promise on Twitter, the Tesla CEO has sold about 900,000 shares of the electric car maker's stock, netting over $1.1 billion that will go toward paying tax obligations for stock options. The sales, disclosed in two regulatory filings late Wednesday, Nov. 10, 2021, will cover tax obligations for stock options granted to Musk in September. (AP Photo/Susan Walsh, File)

FILE – Tesla and SpaceX Chief Executive Officer Elon Musk speaks at the SATELLITE Conference and Exhibition in Washington on March 9, 2020. After making a promise on Twitter, the Tesla CEO has sold about 900,000 shares of the electric car maker’s stock, netting over $1.1 billion that will go toward paying tax obligations for stock options. The sales, disclosed in two regulatory filings late Wednesday, Nov. 10, 2021, will cover tax obligations for stock options granted to Musk in September. (AP Photo/Susan Walsh, File)

But Tesla won’t be the only (dare I say) blue chip e-company forever. In fact one of the most serious parlor games on Wall Street right now is picking which other e-businesses will become dominant tomorrow. I want to go through some of these companies, but before that, some brief history about, yes, electricity.

The word “electric” comes from the Latin word electricus (“of amber” or “like amber,” also the elektron, the Greek word for “amber”) because one way we humans first became aware of electricity was when amber is rubbed it becomes magnetic.

Yes, Ben Franklin was an early pioneer. Some version of the kite and the key story may in fact be true. But no, Franklin didn’t “invent” electricity, (any more than Columbus “discovered” the new world.) Franklin did help harness it and maybe coined the phrase “electric battery.”

Other giants in the history of electricity include the likes of Thomas Edison, (who among many other things, was a co-founder of the aforementioned General Electric company.) His rivalry with George Westinghouse (AC versus DC) makes for an excellent movie, “The Current War,” starring Benedict Cumberbatch as Edison (I know, really?) There’s also of course the amazing Nikola Tesla, the namesake of two EV makers, which I wrote about here.

Then there’s British physicist Michael Faraday, who in 1850 was asked by William Gladstone, then the Chancellor of the Exchequer, what the practical value of electricity was. “One day sir, you may tax it,” was Faraday’s retort.

A quick word about Industrial Revolutions. The first one, from 1760 to 1820, wasn’t about electricity at all and was in fact driven by localized steam engines, textile looms, the cotton gin and other simply powered machines. The Second Industrial Revolution however, from 1870 to 1914, is when electrification began which led to the creation of giant steel, chemical businesses and scores of other industries as well.

Of course electricity was used for cars early on and for rails and buses right through, but the powerful oil and gas industries promoted internal combustion engines at the expense of electrics from the early 20th century right up to, well now. (“Who Killed the Electric Car” is just a recent example of many such stories.)

But now that’s all changing. Why? Awareness of global warming for one. Erika Myers, a senior EV analyst at the World Resources Institute, thinks electrifying the economy is “our best chance” to address climate change. “I would not say EVs are a silver bullet,” she adds. “There needs to be a lot of strategies for transportation. Transport is 25{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of global carbon dioxide emissions and fossil fuels have provided 95{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of transportation fuels up to this point.”

“There’s not enough biofuels — you can’t do enough sequestration to get there,” says Saul Griffith, co-founder and chief scientist at Rewiring America, as well as the author of “Electrify: An Optimist’s Playbook for Our Clean Energy Future.” “80{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} or 90{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of our energy system has to go electric. People say hydrogen but hydrogen starts with green electricity.”

Remember too that technology is driving down the cost of going electric.

Rivian Founder and CEO RJ Scaringe, left, unveils the first-ever electric adventure vehicle before its official reveal at the LA Auto Show at Griffith Observatory on Monday, Nov. 26, 2018 in Los Angeles. (Carlos Delgado/AP Images for Rivian)

Rivian Founder and CEO RJ Scaringe, left, unveils the first-ever electric adventure vehicle before its official reveal at the LA Auto Show at Griffith Observatory on Monday, Nov. 26, 2018 in Los Angeles. (Carlos Delgado/AP Images for Rivian)

Now back to the new electric companies. First, because the first wave of this third revolution has been cars, the category is usually referred to as EVs, (electric vehicles). But when you look up, say a list of best EV stocks, (like this one and this one), they invariably include battery makers and other suppliers as well.

There are a handful of EV ETFs, such as this one and this one that focuses on China plays, but most are still small and not really pure plays, i.e. they hold, say, diversified chipmakers that produce chips for EVs, but also have major other lines of business as well.

Here then are a few categories:

CARS AND TRUCKS

“Even Bloomberg New Energy Finance, which I’d hardly call radical, estimates in 2025, 2026 the electric vehicle will cost less in the showroom than an internal combustion engine,” says Saul Griffith. “When electric vehicles are more cost efficient in 2025 — it has flipped in China, in Norway — then it’s game over.”

There are EV makers selling right now, Tesla but also Lucid and Rivian. (BTW, Musk’s arch rival Jeff Bezos’s company Amazon is a large investor in Rivian.) In China you have NIO, (a very popular ticker here at Yahoo Finance), BYD (which Charlie Munger has invested in), Xpeng and Li. Then there are those that shall we say, are on more extended timelines like Fisker (FSR), Canoo (GOEV), Faraday Future (FFIE), Lordstown (RIDE) and Xos (XOS).

Obviously Rivian has been the talk of the town, which as my colleague Rick Newman notes, is a bit bizarro, “Electric-vehicle startup Rivian [with its giant market cap] has never sold a vehicle until this year. GM sells around 7 million vehicles per year; Ford, 4 million.”

True that Rick. But sometimes Mr. Market likes bizarro.

Another interesting point about Rivian to consider. DataTrek suggests that: “Rivian is the first legitimate competition Tesla has ever had in terms of institutional investor interest. That could pull capital out of TSLA, and therefore the S&P 500.”

Of course Elon couldn’t resist a poke Tweet at Rivian: 

Some are saying that now is the time to sell Tesla, as in “Own Tesla Stock? Be Like Elon Musk and Sell” in the Wall Street Journal this week. Who knows, maybe this time the skeptics will be right. Ark Invests’ Cathie Wood is still a believer though, saying the recent dip in Tesla is, “is nothing but a blip,” on the way to her price target of $3,000.

MOTORCYCLES

What makes people love motorcycles; the noise, the vibration, the smell is exactly what electric motorcycles obviate. And of course, any self-respecting Harley rider would scoff at all that. (My colleague Pras Subramanian, who covers EVs and all things electric, details all in this primer on e-bikes.) In spite of or perhaps because of all that, I think e-motorcycles are going to be a home run. Here you have newbies like Zero Motorcycles and NIU (e-scooters) as well as Volcon (VLCN), a manufacturer of electric motorcycles, and ATVs based near Austin, “an area that is poised to become the electric vehicle capital of the world.”

“With our current products, we found out 50{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of people ordering directly from us hadn’t ridden a motorcycle before,” says CEO Jordan Davis. “Our bike doesn’t require a clutch; it doesn’t require a shifting of gears. You don’t need to be mechanically inclined — there’s no spark plug, no oil changes. Maintenance on the bike is very, very low.”

Wouldn’t you kill to be a fly on the wall at Harley-Davidson, which has an electric motorcycle called LiveWire, as they discuss all this?

BATTERY MAKERS

I get out of my depth pretty quickly here, so I’ll keep it short. This article is a great starting point. Bottom line: Most of the know-how and manufacturing is in China, which brings global politics into play as outlined in this New York Times guest essay by Steve LeVine, editor of The Electric, a publication focused on batteries and electric vehicles. His most recent book is “The Powerhouse: America, China and the Great Battery War.” (I’m telling you there is so much here.)

SPACS

Unlike the other categories here, SPACs are an investment vehicle through which many e-companies choose to go public. Kristi Marvin, CEO and founder of SPACInsider.com and her team put together some numbers. Simply put EVs are big on SPACs. Since the beginning of 2020, when SPACs began to boom, 23 EV SPACs have been announced or completed including SPACs for Lordstown, Fisker, Lucid and Nikola, with a total enterprise value today of $67 billion, the second biggest SPAC category after tech.

The Volta, an all electric helicopter takes off at the Paris Heliport in Issy-les-Moulineaux, France, October 19, 2016. REUTERS/Regis Duvignau

The Volta, an all electric helicopter takes off at the Paris Heliport in Issy-les-Moulineaux, France, October 19, 2016. REUTERS/Regis Duvignau

PLANES AND HELICOPTERS

Even more speculative here. “Right now batteries are just too heavy to be used successfully in commercial flights,” says Erika Myers. (There’s also the question of whether anyone would fly in an electric plane, nevermind helicopter?) Still this too could be coming. There are numerous commercial projects underway, including those by Airbus, Cessna and EasyJet, as well as startups like Wright Electric (“All short flights can be zero-emissions starting in 2026.”) And check out the Pipistrel Velis Electro, plane of the year. As for choppers, going back to 1917 apparently there was an electrically-powered tethered job. (Yikes.) Sikorsky’s been working on the Firefly for a decade. Here too there are myriad projects that include hybrids and unmanned models. (That sounds better to me!)

OTHER

Want an electric tractor? Check out here. And here. Electric RV? Coming here and here. Electric boat? Got a whole fleet of ‘em. Electric generators? Amazon has all kinds. And I could keep going here into any and all gas or diesel, etc. powered engines business again.

And that would include GM and Ford, right? It’s kind of funny to put these two legacy giants in an “other” category, but yes, they too could be major EV companies… soon. In fact they better be. There are signs. Ford stock has quadrupled (to $19) since its COVID-19 low in March 2020 based to a large degree over optimism of achieving this transformation. (GM has tripled to $60 over the same time period.) For Ford, developing an electric F-150 is critical. “To take something so central to Ford’s entire brand image and make an electric version and price it at a price point that’s extremely competitive, I think is a great achievement and is going to make a huge impact in the coming years,” says Ram Chandrasekaran.

And then there are the others. Ferrari is going electric, at $320K a pop. (What’s a Ferrari without the VROOM, I wonder…) And so is the aforementioned Hertz. Hertz CEO and former Ford CEO Mark Fields telling Yahoo Finance’s Brian Sozzi: “We are excited about the Tesla relationship. It’s all wrapped around our strategy to lead the adoption of electric vehicles.”

Everybody’s in on the act because, well, you want to be in on the act, but also because you do it or you die.

Sound like an investment slam dunk? Not exactly. I’m sure there are fortunes to be had for VCs and for ordinary people as well, (like buying TSLA two years ago when it was $70 — it’s now $1,045.) But please, please, please caveat emptor here. There’s all kinds of risk. For instance, hydrogen-powered vehicles for instance might make a quantum leap and win out over EVs.

I’m also reminded of something Warren Buffett said back in 1999: “There’s a lot of difference between making money and spotting a wonderful industry.” Here’s how Buffett expounded:

“You know, the two most important industries in the first half of this century in the United States — in the world, probably — were the auto industry and the airplane industry. Here you had these two discoveries, both in the first decade — essentially in the first decade — of the century. And if you’d foreseen, in 1905 or thereabouts, what the auto would do to the world, let alone this country, or what the airplane would do, you might have thought that it was a great way to get rich. But very, very few people got rich by being — by riding the back of that auto industry. And probably even fewer got rich by participating in the airline industry over that time. I mean, millions of people are flying around every day. But the number of people who’ve made money carrying them around is very limited. And the capital has been lost in that business, the bankruptcies. It’s been a terrible business. It’s been a marvelous industry. So you do not want to necessarily equate the prospects of growth for an industry with the prospects for growth in your own net worth by participating in it.”

Meaning in some cases it might be great to be a customer, i.e., to own an EV, but it might not be as great to an EV shareholder. To wit: Living in the electric economy might be more rewarding and enjoyable than investing in it.

Wikipedia has a “List of defunct automobile manufacturers of the United States” with some 1,500 entries. While some EV makers will succeed wildly, no doubt others will be added to this list.

This article was featured in a Saturday edition of the Morning Brief on November 13, 2021. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer

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The real-life family business drama not on HBO’s Succession

Logan Roy, played by Brian Cox, at his daughter’s wedding reception on season 1 of HBO’s Succession.

Colin Hutton | HBO

Actors often don’t like to watch their own work once it is out in the public, but no one finds it more difficult to watch HBO’s “Succession” than those who have actually lived the life of a family business.

“I had to stop watching because it felt a little too real,” says Ionnie McNeill, who recently transitioned out of a management role with MCO Construction, the company founded by her mother and which she had at one time been convinced she would eventually lead.

“Family businesses are different from other businesses because there’s just a lot of underlying, unspoken emotionality. These are not just business decisions but hopes and dreams of a legacy generation,” McNeill said. “Lots of stuff goes on. Coercion, harassment, manipulation … There’s just a lot of ‘Succession’ that other people wouldn’t deal with in another corporation. It’s a hotbed of promise … and a sense of entitlement.”

Kevin O’Leary says he has seen too many “heartbreaking” examples of family businesses where relationships and wealth are destroyed by poor succession planning and, in particular, the assumption that children are always the right people to take over. As a TV personality, O’Leary may state things in a manner closer to “Succession” than reality. There are many family successions that go wrong, but many that end up being extremely successful.

What is true, according to experts who study family business, is that the transition from a founder to the next generation is challenging in a different way, and potentially in a bigger way, than a transition in a non-family firm. And among the factors that often contribute to things going wrong — and is true to the HBO series — is a founder waiting far too long to put a succession plan in place, at least in part because they aren’t ready to give up control, and health issues which may change the situation rapidly.

Founder identity and a firm’s future collide

It’s not an easy process for founders to undertake after running a firm for decades. “That’s your identity,” said Morten Bennedsen, professor of family enterprise at INSEAD and the academic director of the Wendel International Centre for Family Enterprise. “So they go back to working 80 hours a week managing the firm, and no time to think about these things.” 

And what happens to succession as a result of that willful neglect?

“Too many happen by heart attack,” Bennedsen said. “If you don’t plan and if the founder doesn’t want to speak about these things, ultimately nature will make the transition, and in the worst possible way.”

His research surveying family firms suggests that founders in the U.S. and Europe have improved on succession planning, but even in these more developed markets, a surprisingly larger number still don’t have a plan in place. Among small- and medium-sized firms in Europe, roughly 40{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of founders surveyed say they are planning to create a succession plan within 10 years, but have not done so yet, and he said the same is likely true for the U.S.

In mainland China, there are hundreds of thousands of private firms without a roadmap for succession, and with China’s population policies of the past half-century, often a lack of many children to even consider as successors.

“Planning means more than thinking about it in your head,” Bennedsen said.

Succession planning needs to start early

Plans have to be communicated to family members, especially those who expect to be successors, and to the board of directors.

This is a process that Delaware-based Nixon Medical got right. Founded by Murray Berstein in 1967, it remains a family business with a high rate of growth. In 1997, the company, which provides medical apparel and linens, had revenue of $9 million-$10 million. By 2007, as Murray was transitioning out of the business, the firm had grown to $20 million in annual revenue. Now annual revenue is north of $80 million as it has expanded from the mid-Atlantic and three locations to 10 locations now serving the mid-Atlantic, New England and Texas.

Jason Berstein, the company’s current president and one of Murray’s three sons now in executive management, attributed the success, at least in part, to his father’s willingness early on to develop a high-level succession and ownership plan, and contemplate a life for himself after giving up control of the company. “My dad remains passionate even with no ownership interest or leadership,” Berstein said. “It was really hard for him to let go, but he knew it was right thing to do for us.”

Nixon Medical mapped out how the process would work, but did not make the decision on who would be chosen leader until it needed to be made in late 2006 before their father transitioned away from day-to-day leadership in 2007.

The three Berstein brothers, as well as a family business consultant, were part of that plan in their 20s and all retain roles in the company suited to their skill sets. “Unless you knew we were brothers, you would just think we’re three executives,” Berstein said.

“One benefit of being in front of stuff in terms of succession issues is if you can make these decisions on how things will work without an immediate decision, if it is all forward looking and not emotionally charged, everyone understands how things work and it results in a much smoother outcome then when it needs to be an emergency,” he said.

Their father also began transferring ownership of the company to his children, a process that Berstein believes is important for family firms so the new leadership can run the operations financially independent of the founder.

“He doesn’t have to worry about it, it doesn’t impact him financially, but he cares about it because it’s his fourth child, or maybe first child, and we were the next three,” he said. 

Children aren’t automatically the right CEO candidates

Nixon Medical had one key advantage in addition to a founder who was ready to take action on succession: the children wanted to lead the company. A lot has changed in society since the 1970s and 1980s when it was an expectation if not a duty for the next generation to take over a family firm.

“You cannot force kids in the U.S. or Europe to take over the business. The next generation says no more often,” said Bennedsen. “It’s not very popular among peers, going back to mom and dad. Everyone wants to be Steve Jobs today and create something on their own.”

If no family member is available as a leadership candidate, “Take the money and give it to the kids rather than saddling them with something they don’t want to do,” said Jennifer Pendergast, executive director of the John L Ward Center for Family Enterprises at Northwestern University’s Kellogg School of Management.

For family firms where children are interested in taking over, an apprenticeship model to groom successors is important because there are idiosyncratic aspects to running a family firm and operational reasons for in-house grooming. The network the founder has developed in business and politics is easier to transfer within a family than to a “McKinsey type,” Bennedsen said. “It’s important the next generation has those idiosyncratic skills to be successful,” he said. “The more you expose them to the firm, the more it is maybe an option.”

Ionnie McNeill’s mother Ann, who founded MCO Construction and was the first African-American woman to found a general construction firm in the state of Florida, shared her entrepreneurial life with her two daughters throughout their childhoods. “I got work experience and exposure to the business and entrepreneurship the way most children do not,” McNeill said. “I went to school and then went back to the office with my mom, did homework in the car, helped to sort mail.”

But the best successions within a family are more likely when a next-generation leader has a CV that includes an external education and leadership experience outside the family firm. “If you want to give the company to the next generation, it’s very important to have a balance of family assets and the ones professional CEOs share, and that is often what is missing,” Bennedsen said. “If you don’t have your own skills you are in a weak position … if all you can do is what your parents have told you.” 

First-generation wealth creators possess a skill set that is often different than what their children possess.

“It doesn’t mean they are not as bright,” said Michael Sonnenfeldt, founder of Tiger 21, an investing and professional networking organization for business founders. “They’re just children who grew up with all the benefits that their parents didn’t have and so it’s not the natural order to think children of great entrepreneurs can match the entrepreneurial skills of their parents. It happens sometimes, but it is the exception to the rule.”

“So many people work so hard to build businesses and want to give kids the opportunities they may create for themselves. Passing on a business can be like a lead weight around the neck, not in every case, but the general notion that it’s very hard to pass operating companies to the next generation is substantially correct,” he said.

That is one reason he says most Tiger 21 members have sold their companies or taken the companies public, believing the value they created and can pass on to children is better preserved in the proceeds of a sale than in the business itself.

There are exceptions, such as real estate or natural resources, which maintain value better than operating companies. “But operating companies, unless the very best, the next guy who starts a competitor will put you out of business. It’s simply less likely the next generation will have the skills of founders in operating companies. When the only assets are the people it’s harder to keep up with competition,” Sonnenfeldt said.

The future of the family business

Nixon Medical will face the same challenge again in the future, and Berstein, 49, said he is now thinking about how challenging the transition from generation two to generation three of his family will be. The brothers have yet to decide if the firm will remain under family leaders for a third generation.

“If you go back in time for us, at least, the business was much more manageable in size,” Berstein said. If the firm continues to be successful, finding a qualified person within the family to lead will be even more difficult. “You have to be all-in,” he said. 

“I have plenty of runway left, but one thing we decided was whoever is the leader, it is not guaranteed for life,” Berstein said. “It depends on performance and we set up the independent board to manage my performance and set my compensation.”

Challenges Bernstein and his siblings will face include the fact that not all have the same number of children, diluting ownership, and not all of those children (nine in all) will want to work in the family business. “We don’t expect the majority, we expect the minority to work in the business,” he said.

But the plan is the same as what their father laid out for them: to not wait until it is too late to put the leadership succession and ownership transition process in place, when it might be harder to give it up.

McNeill said her older sister, 12 years her senior, was intended to be the next generation leader at MCO Construction based on business plans from the 1990s, but her sister wasn’t the right person for the job. “She would leave and come back and leave and come back and my mom didn’t think she could handle the business,” McNeill said,

That led her to become the likely successor, but over the past six years, “I did this merry-go-round,” she said.

“When it came down to the succession plan and saying ‘Hey, mom can you do one?’ I quickly had to realize my mother also is a person and in that realization, I had to honestly look at her stress and her weaknesses and quickly came to see she was never going to give it up,” McNeill said. “For two to three years I had been like, ‘Hey, we need to do this.’ The amount of energy I was spending trying to get her to do a succession plan, I realized I should do one for myself, and I exited the business.”

Once she was able to see clearly, McNeill also was able to verbalize her realizations to her mother and instead of the relationship suffering, they renegotiated how to have a mother-daughter relationship without the business. That didn’t happen without hesitation. “She was always like, ‘I support you,’ but I don’t think she really believed I would do it.”

McNeill says she worried her mother might spurn her if she left regardless of what her mother said, and some of the questions swirling around in her head led to feelings of shame, such as, “Will you still love me if I left?” but she says getting it all out into the open was important.

“I am paying for therapy so I do have to get my money’s worth,” she said. “The next generation needs to be okay with saying, ‘It’s not a family business, it’s your business.”

For second-generation family members, a sense of obligation should not be the reason to lead a family firm, Pendergast said. “‘Lucking out’ is not necessarily something everyone would want.”

“People who found businesses often can’t let go, and have tough personalities. How fun is that? If they second guess every decision. You still have Thanksgiving and Christmas and do you really want it to be all about the business?” she added.

McNeill’s relationship with her mother is different now, but it isn’t broken. They have been co-hosting a podcast called #MyInvestingStory, and she has dinner with both of her parents every night. “We don’t talk about the business unless she has some exciting news to share,” she said.

“Family businesses get a lot of bad publicity,” Berstein said. “People say ‘Oh my god, it sounds like a nightmare, and you hear about all the tragedies. The reality is there are a lot that are fantastic places to work and are run professionally and are great for the economy.”

More divorces and multiple sets of kids are part of a family structure that is changing and which will add to an already complicated natural succession planning process for multiple-generation firms. But demographic and cultural mega trends may be good thing, as many of the family successions that do take place should never have been completed. The vast majority of private firms are family firms, and among those two-thirds have ownership transfers inside the family, while one-third are sold. That may decline to 50{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}-50{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in the future.

“I think we will see less family succession in the future,” Bennedsen said, “but hopefully less catastrophes.”

He has seen many of those across the globe, from a Nigerian founder with multiple wives and dozens of kids and 40 companies, “which all went to pieces”; to a founder in his home country of Denmark who sold a major firm to institutional investors but then bought it back at the age of 94 and still didn’t want to talk succession with his children, holding on until he died at 99; to allegations of murder being committed over control of family fortunes.

Having watched “a few” episodes of “Succession,” Bennedsen added, “You cannot imagine what happens sometimes in family firms. But all inside one family? I am not sure.”

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Smarsh Launches New Communications Intelligence Platform

On Monday, Smarsh launched the future generation of its Communications Intelligence System, which is developed for firms in regulated industries and meant to provide for all their digital communications capture, archiving and oversight requires.

It has been a fast paced number of months for the firm, possessing declared the 7 days prior to its acquisition of the Electronic Safe and sound archiving and hazard administration merchandise line from the substantial multinational software agency Micro Target for $375 million. That offer is anticipated to close, pending regulatory acceptance, in the initial quarter of 2022.

Relevant: Smarsh Subsidiary Entreda Acquires Privva

A mere two days prior, on Nov. 1, Smarsh cybersecurity subsidiary Entreda introduced its acquisition of Privva, a cyber-chance evaluation business (terms of this offer were not disclosed). Entreda alone was acquired in Might 2020.

 

Relevant: Smarsh to Acquire AI Pioneer Digital Reasoning

Communications Intelligence Platform

With Smarsh’s new synthetic intelligence–powered and cloud-primarily based system, economical expert services corporations and people in other remarkably controlled enterprises can evaluate communications facts at scale, searching for risks as effectively as additional rapidly surfacing business perception.

The platform provides for capture and archiving help throughout additional than 80 communications channels, including email, workstream collaboration platforms (like Microsoft Groups), cell, social and audio.

Money services firms are necessary to seize and critique greater volumes of digital communications and facts than at any time right before to satisfy their regulatory retention and oversight obligations.

With the acquisition of groundbreaking synthetic intelligence technologies business Digital Reasoning a yr ago, Smarsh has been equipped to establish its personal in-residence purely natural language processing and device mastering know-how into the system, letting it to evaluate the two written and spoken communications data.

As the statement announcing the rollout mentioned, the new technology of the system is now geared up to surface area the signals, together with the “compliance and manufacturer hazards, costly operational glitches, safety threats, real-time cultural indicators and untapped income opportunities” in a firm’s communications.

“Legacy e mail archiving and surveillance remedies simply just weren’t designed to cope with the petabyte scale of disparate details established by corporations currently,” said Smarsh Chief Product or service Officer Goutam Nadella, in the assertion.

Smarsh has been a important corporation within just the money communications compliance area for about a 10 years, getting acquired various firms around that period of time, together with other main suppliers in the social media and compliance fields. It presently supports additional than 6,500 customer firms. In addition to its numerous prosperity administration buyers, the agency functions with all the top 10 banks in the United States and many other folks all around the planet.

 

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“What Is Your Company’s Maintenance Capex”?

“What Is Your Company’s Maintenance Capex”?

How considerably of the company’s financial investment is recovered through revenue? What expenditure would it take to market the quantity of solution we pushed out this year? How a lot of our financial commitment will direct to advancement through acquisition of new prospects?

A person of the to start with factors enterprise professors instruct in an introductory finance class is how to prepare the funds price range. The teacher dutifully asks learners to venture how a capital outlay – this sort of as a device in a factory – could produce long run money inflows and likely revenues. Following a extended discussion about the correct price of a machine to subtract from its opportunity funds return, students arrive at a net present price (NPV) of that investment decision. When students program how a lot to commit in their opportunity business enterprise, they look at the NPV with the price tag for paying for the equipment. The decision rule is that if the NPV of the exceeds the first buy cost, the investment decision is a go.

But even nevertheless this elementary thought is a main tenet of financial commitment, it is routinely misused, distorted or basically ignored, as illustrated under.

How a great deal of the PP&E and intangible expenditure is recovered through profits?

This is a query that rarely will get requested. But the question is simply just a logical extension of the NPV analysis to justify an original financial investment. Section of the dilemma is a rising obsession with marginal pricing, specifically because the advent of the World-wide-web. The prevailing concept is that the product rate merely requires to go over the variable prices, due to the fact elevated volume will sooner or later allow for a organization to enjoy economies of scale from network outcomes and spend for the fixed charges incurred to set up the community outcomes. As I have penned prior to, investors can hardly ever check this narrative since fiscal statements do not break down a firm’s cost composition into fastened and variable charges.  Even additional worrying, how quite a few CFOs talk to/know the part of the preset fees employed to create productive ability ended up recovered from the sale of every marginal item?

Non-GAAP earnings that include back productive capability fees

Numerous providers use non-GAAP metrics that add again successful potential expenses this sort of as depreciation and restructuring. But there’s a challenge: these non-GAAP metrics in essence assume that capacity expenditures are zero and the business can have on in its merry means devoid of producing investments. Whichever happened to the idea of recovering the hard cash outlays by way of long term revenues?

Charging servicing capex, not depreciation, to the profits statement

The right issue for an trader to request is this: “What is the annual price of productive ability that we need to charge versus revenues these types of that capability costs sustains the revenue generated by the organization?” Some call this quantity “maintenance capex.” Warren Buffett, in his 1986 letter to shareholders, defines routine maintenance capex (my label, not his) as “the normal yearly amount of money of capitalized expenditures for plant and equipment, etcetera. that the business enterprise requires to thoroughly retain its long-phrase aggressive place and its unit quantity.” The remaining capex, labeled “growth capex” should really preferably be capitalized as an asset on the harmony sheet.

I speculate no matter whether CFOs undervalue the authentic expense of successful ability, primarily upkeep capex which, in convert, indicates that reported margins are not sustainable. As an analyst, what can you do to estimate routine maintenance capex? Study by our graduate scholar, Venkat Peddireddy, suggests that the maintenance capex of a enterprise, outlined purely as PP&E (home, plant and devices) outlays, not intangibles, is approximately 20 {21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} increased than the reported depreciation variety. Of system, that amount varies by field. But, if you want a fast and filthy adjustment, enhance described depreciation variety by 10-20 p.c and compute the subsequent tax-modified influence on web profits.

Audit companions I have chatted with are skeptical of the Peddireddy analyze. They believe that that various absolutely depreciated property are even now remaining used by corporations. They issue out that numerous PP&E merchandise (not automatically the evident applicant, authentic estate) are basically composed up in order cost allocations when the acquirer accounts for the thing to consider paid out to the focus on organization in an M&A transaction. My worry is that the audit companions overlook the pressures imposed by technological obsolescence on firms. If your competitor has a shiny new item, you have to get that item or hazard losing market share in the product or service marketplace. Also, targets that produce up these types of belongings are self-chosen in that they are not your “normal” firm that the Peddireddy analyze considers. In truth, the target business, whose invest in price allocations are remaining reviewed, have been acquired likely to handle technological obsolescence feared by the acquirer. Moreover, is the create up of absolutely depreciated property at the focus on corporation a way to justify possible overpayment for the target?

Just one way to resolve this puzzle is for the CFO to report their routine maintenance capex amount in their MD&A or in their financial statements.

How numerous CEOs explicitly imagine about servicing capex?

How lots of organizations really report their upkeep capex selection? Very couple. A person could chalk that up to secrecy and an effort and hard work to hide proprietary facts from opposition. I marvel how a lot of CFOs even know their servicing capex range. Inquiring that dilemma, in particular for intangibles this kind of as R&D and selected factors of SG&A, is even trickier.  A nicely-regarded analyst shared the adhering to story with me: “I was with a CEO yesterday and requested him if he would be equipped, if only crudely, to allocate his SG&A among servicing and discretionary paying. He mentioned he’d have to feel about it a whole lot!”

How substantially should really Netflix commit on material creation to just retain its marketplace share in the U.S.? How much need to Amazon invest on technologies to preserve growing? Could the supply chain fiasco we face now have been prevented if extra of us in the C-suite experienced requested, “What expenditure would it consider to sell the quantity of item we pushed out this calendar year?” Or even more simple, “What is our servicing capex number?” These are hard but essential inquiries that will need to be questioned more typically in meeting phone calls and board rooms.

The SEC can take care of the valuable daily life and depreciation disclosures

The crux of the difficulty is the extremely uninformative disclosure that firms offer on the helpful lives of their house plant and products. I have reproduced the practical life footnote from Residence Depot’s 10-K for the fiscal calendar year finished 2020:

Notice the ranges of useful life for properties and leasehold advancements (5-45 several years) and for home furniture (2-20 several years). How is an investor intended to know the genuine handy lifestyle of these belongings if the ranges are this broad? And, to make issues worse, corporations report just one mixture depreciation number. Depreciation is hardly ever, if ever, broken out by asset class for most organizations.

At some point when organizations choose impairments or restructuring rates partly as a outcome of overoptimistic handy lives and reduce depreciation numbers assumed earlier, they persuade investors to only incorporate back again these “non-recurring” merchandise again to earnings. Is not an asset impairment or a restructuring cost related to belongings basically “catch-up” depreciation?

The difficulty with intangibles

We are fortunate to get at minimum some granular disclosure for tangible belongings. Disclosure is far more opaque for internally produced intangible assets. It is significant to put some value of intangibles on the balance sheet for the easy rationale that a zero selection on the balance sheet is ipso facto immaterial. Auditors pay less awareness to a zero-asset amount. So do regulators. If the watch puppies are not concentrated on a number, why would supervisors have incentives to disclose much more info on intangibles. I have pointed out how Amazon spends $42 billion on technology and written content but devotes a grand full of 300 phrases in its 10-K conveying what that money is put in on.

Summary

In sum, when you take into account investments for effective capability, both of those tangible and intangible, for corporations make confident you know the answers to three thoughts: (i) what is the legitimate handy daily life of these ability investments? (ii) what is routine maintenance capex, each for intangible and tangible belongings? And (iii) what is the advancement capex amount?

Suggestion for the SEC: you should make companies disclose some thing shut to the legitimate financial existence of an asset, equally intangible and tangible.

Visit : https://marylandheightsresidents.com/

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Financial Markets and Social Media: Lessons From Information Security

On January 28, 2021, stocks in U.S.-based video game retailer GameStop Corp. reached an all-time high of $483. Two weeks earlier, they had been trading at $20. Two weeks later, they were down again, and a congressional hearing on the matter was underway in Washington.

Wild swings are hardly uncommon in financial markets. This episode, however, had novel characteristics. In a recent report, the U. S. Securities and Exchange Commission states that “GameStop Corp and multiple other stocks experienced a dramatic increase in their share price in January 2021 as bullish sentiments of individual investors filled social media.” 1 Retail traders congregating on the Reddit platform were key in both price formation and the emergence of a “Main Street versus Wall Street” narrative around the stock.2

The influence of social media on financial markets is here to stay, as younger generations start saving and investing. This carries both opportunities and risks. Information sharing and discussion on internet platforms can improve market transparency and efficiency. On the other hand, social media platforms are known vehicles of disinformation and manipulation of human behavior. They could be weaponized by malicious actors, ranging from state-sponsored groups to crime syndicates, looking to compromise market integrity and financial stability.

For liberal democracies with independent financial watchdogs, a complex policy challenge follows. In order to fight information operations, financial authorities will need to cooperate with intelligence communities and other relevant parts of executive branches. This requires rules that clearly define each party’s role and encourage reciprocal trust.

In many jurisdictions, cybersecurity statutes provide a starting point. They are, however, limited in scope, only covering cooperation vis-& agrave;-vis traditional cyber attacks. In this paper, we argue that the model must evolve to help prevent or defend against malicious information operations.3 We highlight, as a first step, the importance of organizational modules that allow entities with different levels of access to classified information to work together to assess and inform responses to hostile operations.

Retail Trading and Social Media

Nonprofessional trading has been growing for a few years, partly thanks to new low-cost, user-friendly fintech apps. According to market research firm Apptopia, the top seven trading apps that are not connected to legacy investment firms enjoyed 126-percent growth in U.S.-based downloads between 2015 and 2019. In 2020 and 2021, mobility restrictions related to the coronavirus pandemic translated into further interest in financial apps, both in terms of new users and of daily time spent on the apps by each user.4One of the most popular platforms, Robinhood, announced in its June 2021 IPO filing that it had 18 million funded accounts.5

Overall, in dollar terms, the phenomenon is still in its infancy. Participants may be legion, yet they invest relatively modest amounts.6 Nevertheless, retail traders can have a substantial impact when they, as a group, target smaller stocks. Social media offer an opportunity for these groups to form and act at low cost and high speed.

Claudia Biancotti

Claudia Biancotti is a director at the Bank of Italy.

The wallstreetbets community on Reddit has emerged as a key forum for individual traders to exchange investment suggestions and coordinate actions. A few influential users taking an optimistic view of GameStop’s prospects were instrumental in building interest in the stock and orchestrating the first rally in early 2021. Before the GameStop episode, wallstreetbets had roughly 2 million subscribers. By July 2021, it had surpassed 10 million.7 Even as several members suffered heavy monetary losses, vivacious discussion and trading continued.8

Virtual trading communities have their own understanding of value. Participants certainly care about returns. Yet, as noted by economist Jayanth Varma, some of them maximize goals other than profit.9 Their trades are an investment and may also be a political, a moral, or even an emotional statement. Collective beliefs, epitomized in catchphrases and memes, are cemented by online interactions. The epic narrative of ordinary people challenging the powerful looms large. Making money is conflated with making a point, as photos of trades are posted with captions like “just joint the fight” (sic).10

This attitude partly originates in the crypto-asset world, the original twenty-first-century mixture of techno-utopianism, defiance, and run-of-the-mill profit seeking.11 Indeed, wallstreetbets and crypto forums share a language, several players, and some trading apps. 12 Although to different degrees, both are at the crossroads between internet phenomena and the formal financial system.13

Vulnerabilities

Increasing participation in financial markets and transparent discussion of assets in public forums can contribute to economic growth by improving efficiency in the allocation of capital. The popularization of nonmainstream financial analyses and trading strategies is also, per se, potentially positive. In market economies, asset prices reflect an average of different points of view. While this mechanism is expected to be reliable, sometimes it does not work perfectly, and divergent outlooks may be eventually proven correct. Asset valuation models improve over time, occasionally in the wake of such episodes.

When it comes to virtual communities there are, however, certain risks related to how ideas emerge and spread on the internet. Social media provide fertile ground for malicious information operations. Hostile actors can leverage features of online platforms to covertly nudge unaware users toward opinions and actions that serve destructive agendas.14 In the financial sector, most such agendas would involve erosion of trust—in markets, in individual institutions, or in regulators. While there is no evidence that the GameStop saga was driven by external adversaries looking to disrupt the market, some have argued that the next meme stock frenzy might well be.15

Social media are vulnerable to information operations for a number of reasons. First, they use recommendation systems based on what users read and watch, and suggest more of the same. For those with mainstream preferences, recommended content converges to big-name media outlets. For those interested in uncommon ideas, algorithms tend to generate “rabbit holes,” or exposure to progressively more extreme theories. Strategically placed ads can accelerate the fall down a rabbit hole. Adversaries who are adept at injecting their views into this system can succeed in creating self-reinforcing bubbles of radicalized users.

Second, despite significant effort by major platform operators, the presence of fake accounts on social media remains a difficult problem to solve. Troll factories, which are large groups of individuals paid to write comments online, can be deployed to create the illusion of sizable, active communities. Artificial intelligence can generate realistic profile photos that depict nonexistent individuals, and it is making strides toward the ability to post articulate, credible text. Inauthentic action has been repeatedly discovered in online discussions of sensitive topics such as race, gender, and the pandemic.16

Another significant factor, most evident in specialized discussion boards such as wallstreetbets, is the informal hierarchy among users. A few influencers play a major role in orienting group choices. Adversaries that succeed in recruiting influencers can hold sway over large crowds. This is also true in the offline world, but social media act as a formidable amplifier and accelerator.

The financial sector is a very attractive target for malicious actors of all stripes, a well-established fact in cybersecurity. Attacks against financial institutions or infrastructure are frequent. They offer the potential for monetary gain, exfiltration of sensitive information, and even systemic disruption of the economy.17 Adversaries may see information operations aimed at distorting price signals, undermining confidence in financial institutions, or otherwise creating disorder, as a means of inflicting the same kind of harm with fewer risks of detection and retaliation compared to traditional cyber campaigns.

Information operations that start off by targeting the financial system can eventually spill over to the political arena. Near-term, domain-specific outcomes—say, high market volatility or inspiration of protests against a single regulatory provision—may reinforce social divisions over broader ideological issues such as the ethical merits of capitalism, the trustworthiness of corporations, and the accountability of governments.

A Challenge for Policymakers

In liberal democracies, preservation of the financial system’s integrity and stability generally falls within the remit of independent authorities. This is meant to ensure that regulatory and supervisory decisions, while serving purposes defined by the law, are nonpolitical. Watchdogs have a broad range of conventional instruments to mitigate any risks of disruption ex ante, which they are adapting to new technologies.18 They also have the legal means to tackle standard market manipulation and fraud.

In the face of possible information and influence operations, however, financial authorities cannot and should not work alone. Whenever external actors attempt to interfere with a nation’s strategic assets and systems, the problem becomes political. An essential part of the data needed to understand an operation’s goal and mechanics is likely to be exclusively available to intelligence communities. Most importantly, decisions on response are a task for executive branches since they channel security policy choices.

The challenge for policymakers is to bring independent authorities and government agencies together to fight information operations in the financial system, leveraging the existing capabilities of each party and introducing new ones where necessary. Cooperation frameworks are needed that clearly define roles and responsibilities, and foster mutual trust.

In several jurisdictions, frameworks are already defined in cybersecurity laws, but they only cover threats to IT systems—unauthorized access, data exfiltration, ransomware, and so on. The model must be expanded and adapted to malicious information operations. The nexus between social media and retail trading offers the starkest example of a vulnerability right now, but it is important to note that the financial system as a whole is a potential target.

Financial watchdogs constantly keep an ear on the ground for anomalies within their supervisory perimeter. For example, market authorities all over the world engage on a continuous basis in market surveillance, a wide array of activities ranging from verification of potentially harmful rumors to real-time deployment of data analytics to detect illicit behavior. Staff in financial watchdogs also already know how to watch for and react to websites and social media accounts deliberately misleading the public on a company or an asset.

These are good starting points, yet some re-skilling has to occur. In particular, influence operations do not necessarily build on lies alone& mdash;indeed, they are more credible when they incorporate elements of truth. Financial authorities have to learn the basics of how malicious information manipulation works, so that they can be on the lookout for the right clues. There is a need for threat awareness and at least some diffuse capability for intelligence analysis within all regulatory and supervisory agencies.19

Paolo Ciocca

Paolo Ciocca is nonresident scholar in the Cyber Policy Initiative.

Any suspicion of an information operation should be reported via structured channels to the intelligence community for further analysis and, where applicable, attribution. In traditional cybersecurity, the toughest part is finding the culprit(s) of an attack, who are often obfuscated by layers of hijacked machines and unaware accomplices. This applies a fortiori to information operations. Once conclusions are reached, they must be passed on to the relevant level of government for response decisions.

One important choice to be made is: to which extent should independent authorities stay involved in the process of investigating the operation, after they have alerted the government and provided a first round of data and evaluations? A delicate balance must be struck between protecting confidentiality, leveraging specialist skills, and avoiding frictions across institutions, while staying true to the legal mandate of each party.

Preferred solutions would likely vary across countries, even within like-minded groups such as the G7. It is nonetheless possible to find some common patterns across different systems and draw lines of reflection, at least in terms of principles. From a procedural point of view, it is crucial that this issue is settled transparently from the beginning. Factors that need to be considered include, but are not limited, to the following:

  1. government agencies, independent authorities, and other potential participants in the process—for example, private sector entities or academia—have different levels of access to classified and otherwise sensitive information;

  2. information must be passed along to participants on a need-to-know basis;

  3. the effectiveness and fluidity of information exchanges need to be maximized; and

  4. process separation must exist between information gathering, analysis, and response.

These constraints require a flexible organizational module, which enables differentiated access to information across participants. In several countries, current practice in homeland security foresees so-called “fusion centers” or “fusion cells,” hubs where data and capabilities of heterogeneous actors are jointly leveraged for a given goal.20 Fusion centers can involve participants outside of intelligence and law enforcement, such as health authorities or private companies.21 The model could be adapted to include stakeholders from the financial sector. It could also envision appropriate modes of participation for platform operators, since they have access to crucial data on users, and for qualified communities of independent investigators, such as from academia. Depending on the jurisdiction, fusion centers may build on preexisting, cyber-related information sharing arrangements.

Conclusions

Finance-focused virtual communities are growing in size and potential economic and social impact, as demonstrated by the role played by online groups of retail traders in the GameStop case. Such communities are highly exposed to manipulation, and may represent a prime target for state and nonstate actors conducting malicious information operations.

Sophisticated information operations carried out online may be very hard to distinguish from spontaneous behavior. Financial authorities should learn the basic elements of how malicious information operations work, and act as a first line of detection and defense. An appropriate legal framework should be in place so that sector watchdogs can contribute data and specialist knowledge to governmental actors tasked with analysis of and response to information operations. This can be achieved by implementing organizational modules that allow entities with different levels of access to classified information to work together and, in several jurisdictions, by adapting existing legislation on cybersecurity.

The opinions expressed in this paper are personal and should not be attributed to the Bank of Italy, Consob, or the Carnegie Endowment for International Peace. The authors would like to thank Giuseppe Ferrero, Arthur Nelson, Mario Rasetti, Michele Savini Zangrandi, Giovanni Veronese, and three anonymous reviewers for useful insights and suggestions.

Notes

1 “SEC Staff Releases Report on Equity and Options Market Structure Conditions in Early 2021,” U.S. Securities and Exchange Commission, October 18, 2021, https://www.sec.gov/news/press-release/2021-212.

2 Other listed companies, such as AMC Holdings and BlackBerry, were involved in similar dynamics.

3 For a discussion of terminology relating to how information is used to influence target audiences, see Alicia Wanless and James Pamment, “How Do You Define a Problem Like Influence?,” Journal of Information Warfare 18, no. 3 (2019): 1–14, https://carnegieendowment.org/files/2020-How_do_you_define_a_problem_like_influence.pdf.

4 Adam Blacker, “Robinhood Now Has More Mobile Monthly Active Users Than the Top Legacy Providers Combined,” Apptopia, January 6, 2020, https://blog.apptopia.com/robinhood-now-has-more-mobile-monthly-active-users-than-the-top-legacy-providers-combined.

5 “United States Securities and Exchange Commission, Form S-1 Registration Statement, Robinhood Markets, Inc.,” U.S Securities and Exchange Commission, July 1, 2021, https://www.sec.gov/Archives/edgar/data/1783879/000162828021013318/robinhoods-1.htm.

6 IHS Markit, a financial data firm, estimates that “individual-driven, pure play retail accounts” commanded roughly 3 percent of total trading volume on U.S. stock markets between January 2020 and January 2021. Volume is computed based on “changes to custodial positions at Charles Schwab, E*Trade, Interactive Brokers, National Financial (Fidelity’s retail arm), Robinhood, TD Ameritrade, and Wells Clearing custodians.” It does not reflect intraday trading, or individual investment mediated by professional wealth managers. IHS Markit does not specify the reference market(s). According to Reuters, investment bank Morgan Stanley puts the figure at a much higher 10{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}– 15{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} for the Russell 3000 index. The computation methodology is not publicly available. See “Retail Investor Trends: Revisiting the Impact of Retail Activity,” IHS Markit, March 1, 2021, https://ihsmarkit.com/research-analysis/ retail-investor-trends-revisiting-the-impact-of-retail-activity.html; Thyagaraju Adinarayan, “Retail Traders Account for 10{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of U.S. Stock Trading Volume – Morgan Stanley,” Reuters, June 30, 2021, https://www.reuters.com/business/ retail-traders-account-10-us-stock-trading-volume-morgan-stanley-2021-06-30/.

7 Not all subscribers are active in discussions, but installing the Reddit app on a smartphone and joining a subforum, or subreddit, implies exposure to content notifications on a somewhat regular basis.

8 For example, Robinhood was still in Google Play’s top 100 chart in the spring of 2021.

9 Jayanth Varma, “The Rationality of r/wallstreetbets,” Prof. Jayanth R. Varma’s Financial Market’s Blog, January 31, 2021, https://jrvarma.wordpress.com/2021/01/31/ the-rationality-of-r-wallstreetbets/.

10 Novabud, “Just Joint the Fight #GME STAY STRONG,” Reddit, March 5, 2021, https://www.reddit.com/r/wallstreetbets/comments/lyfh2x/ just_joint_the_fight_gme_stay_strong/.

11 Nick Paumgarten, “The Prophets of Cryptocurrency Survey the Boom and Bust,” New Yorker, October 15, 2018, https://www.newyorker.com/magazine/ 2018/10/22/the-prophets-of-cryptocurrency-survey-the-boom-and-bust.

12 GameStop and other so-called meme stocks are traded in regulated markets. Bitcoin is not but, in the quasi-normalized version of today, it is traded by some professional investment firms following strategies that have long been employed for other high-volatility instruments, without any connection to the cryptocurrency’s original spirit. The appearance of normalization is reinforced by a few high-visibility brands choosing to accept Bitcoin as a means of payment—it is, however, important to note that Bitcoin is not legal tender, with the sole exception of El Salvador. See Robin Wigglesworth and Eva Szalay, “’Digital Tulip’ or New Asset Class? Bitcoin’s Bid to Go Mainstream,” Financial Times, February 12, 2021, https:// www.ft.com/content/7ac6c3a6-3fed-4dd9-8a69-939ad6094933.

13 Wallstreetbets also has a measure of contiguity with other controversial corners of the internet. The forum’s tagline is & ldquo;Like 4chan found a bloomberg terminal” (sic), a reference to a now-defunct platform famous for hosting inflammatory content and favoring divisive, politically charged verbal extremes. Similar affinities exist in parts of the crypto world, especially where technical decentralization is translated into an anti-system sentiment.

14 This subject is discussed in a large and growing literature. Summarizing it is beyond the scope of this work. For an introduction to research methods in this field, see Technology and Social Change Research Project Team, “The Media Manipulation Casebook,” Harvard University, https://mediamanipulation.org/about-us. For a nontechnical primer, see for example P. W. Singer and Emerson T. Brooking, Likewar: The Weaponization of Social Media (Boston: Houghton Mifflin Harcourt, 2018).

15 Some retail traders appear aware of the problem, as shown by Russian spy-themed memes during the March 2021 wallstreetbets craze around U.S. defense contractor Palantir. Also see Josh Lipsky and William F. Wechsler, “The Gamestop Saga Is A Road Map For The Kremlin And Other Enemies Of America — Here’s Why,” MarketWatch, February 1, 2021, https://www. atlanticcouncil.org/insight-impact/ lipsky-and-wechsler-in-marketwatch-the-gamestop-saga-is-a-road-map-for-the-kremlin-and-other-enemies-of-america-heres-why/.

16 On the pandemic and vaccines, see for example European Union External Action Service, “EEAS Special Report Update: Short Assessment of Narratives and Disinformation Around the Covid-19 Pandemic, April 2021, https:/ /euneighbourseast.eu/news-and-stories/publications/ eeas-special-report-update-short-assessment-of-narratives-and-disinformation-around-the-covid-19-pandemic-update-december-2020-april-2021/.

17 Also see Tim Maurer and Arthur Nelson, “International Strategy to Better Protect the Financial System Against Cyber Threats, ” Carnegie Endowment for International Peace, November 18, 2020, https://carnegieendowment.org/2020/11/18/ international-strategy-to-better-protect-financial-system-against-cyber-threats-pub-83105.

18 On those, one issue that warrants special attention today is transparency with regard to business models, potential conflicts of interests, and the treatment of customer data. There may also be scope for innovation in disclosure requirements for asset issuers. Perhaps potential investors are entitled to know if a company can count on the support of r/wallstreetbets or Twitter, the way they must be informed of changes in funding or ownership. A reflection is needed on the shifts in risk appetite induced by a sizable influx of small investors.

19 This is urgent in areas where information plays a key role, such as finance, but also applies to other strategic economic branches. Social media are everywhere, influence operations can be anywhere.

20 For example, the U.S. Department of Justice defines a fusion center as a “collaborative effort of two or more agencies that provide resources, expertise, and information to the center with the goal of maximizing their ability to detect, prevent, investigate, and respond to criminal and terrorist activity.” “Fusion Center Guidelines: Developing and Sharing Information and Intelligence in a New Era,& rdquo; U.S. Department of Justice, August 2006, https://bja.ojp.gov/sites/g/files/xyckuh186/files/media/document/ fusion_center_guidelines_law_enforcement.pdf.

21 “Nontraditional collectors of intelligence, such as public safety entities and private sector organizations, possess important information (e.g., risk assessments and suspicious activity reports) that can be “fused” with law enforcement data to provide meaningful information and intelligence about threats and criminal activity.” From “Fusion Center Guidelines,” U.S. Department of Justice.

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Analysts see Nio & Zynga as long-term winners

Chinese electrical motor vehicle start-up Nio Inc’s 1st worker Tianshu LI, and firm’s management team rejoice at the New York Stock Trade (NYSE) Opening Bell to commemorate the firm’s first public presenting (IPO) at the NYSE in New York, September 12, 2018. 

Brendan McDermid | Reuters

Markets are managing to all-time highs even as companies confront inflationary pressures and labor shortages, but traders need to hold a very long-phrase perspective as they opt for stocks.

Earnings assistance for upcoming quarters give investors and analysts some insight into what’s in advance for companies.

To that result, prime Wall Street analysts have determined these five providers as prolonged-expression winners, according to TipRanks, which tracks the finest-accomplishing inventory pickers. Here’s how these stocks are predicted to conduct as the 12 months winds down. 

Datadog 

As company-level company infrastructure moves to the cloud, corporations that support handle and safe it are there to fill the void. Datadog (DDOG) has viewed an amazing operate because its 2019 IPO, and an even extra “extraordinarily powerful” 3rd quarter, according to Jack Andrews of Needham & Co. The organization not too long ago described quarterly beats throughout the board.  

Andrews rated the inventory a Purchase and bullishly lifted his price concentrate on to $236 from $173.  

He wrote that DDOG’s third-quarter efficiency was “fantastic” and that “the company signifies arguably the strongest elementary tale in all of organization application.” Andrews believes the organization is executing nicely on its existing choices and is converting much more new clients to many solutions in its suite.  

The analyst said that quarter over quarter, a lot more shoppers are buying more solutions, a immediate result of DDOG’s rapid pace of merchandise innovation. The firm has been releasing new platforms, such as the Cloud Safety Posture and Cloud Workload Protection instruments. Datadog’s security companies are in their early phases and present for significant upside the moment thoroughly commercialized.  

Including that DDOG “proceeds to fireplace on all doable cylinders,” Andrews observed that the existing sector competitiveness is mainly harmless and the organization must go on to capitalize on its out there industry.  

Economical aggregator TipRanks at this time locations Andrews at No. 80 out of a lot more than 7,000 analysts. His achievement level stands at 73{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}. His scores have returned an average of 53.8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.  

Snap One  

Snap One particular (SNPO) serves as the go-to position for clever solutions for residences and businesses. Snap One particular a short while ago printed a revenue conquer in its 3rd-quarter report and is now targeted on consolidating its power in the “‘living smart’ conclusion market,” wrote Stephen Volkmann of Jefferies.  

He mentioned that the corporation has been stockpiling a healthful sum of inventory to offset persisting supply-aspect headwinds and that its enterprise product provides up extensive possibilities for expansion. Volkmann famous that Snap Just one is the “most recent B2B distributor to embark on what has grow to be a successful financial commitment product to consolidate a fragmented area of interest marketplace with interesting growth dynamics.” 

The analyst rated the stock a Invest in and declared a price goal of $24 per share.  

Snap 1 has benefited from inorganic development by means of mergers and acquisitions. The business is capitalizing on the significant household integration currents with its proven distribution and branch network. Volkmann expects the marketplace to broaden about 11{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} just about every calendar year, and supply chain difficulties have been rather mitigated by Snap One’s selling price boosts.  

As for the provide-aspect difficulties struggling with the company, Volkmann anticipates they will dissipate through 2022. This would established Snap A single up for better margins and working leverage in the prolonged run.  

Out of above 7,000 analysts, Volkmann is categorised as No. 232 by TipRanks. His ratings have been thriving 74{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of the time. They have returned an typical of 30.1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} on just about every 1.  

Zynga  

Zynga (ZNGA) has been productive in its focus on acquiring new buyers and is transferring alongside new games down its pipeline. The social video game developer not long ago printed its greatest ever 3rd-quarter revenue and bookings, owing in section by an greater adeptness at publishing new releases and scaling its functions.  

Pinpointing sizeable upside in the crushed-down valuation is Brian Fitzgerald of Wells Fargo, who wrote that the company has prioritized generation of new content material and game perform modes. This system is anticipated to travel user acquisition and retention, and increase the corporation back again to its former times of relevance in cell gaming.  

Fitzgerald rated the stock a Get and assigned a price target of $13.  

The analyst stated that the difficult times of the earlier are now in the rearview mirror for Zygna, as it sees heightened fascination in its hyper-casual gaming phase. Hyper-relaxed gaming, recognised for its minimalist and addictive gameplay has been just one of the most speedily expanding genres in the business. 

The enterprise has been efficiently running its running expenditures. This, merged with its advertising advancement are resulting in “superior-than-envisioned operating leverage.”  

TipRanks at this time calculates Fitzgerald to be No. 61 out of additional than 7,000 other qualified analysts. His stock picks have been appropriate 72{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of the time, and they have returned an normal of 57.1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.  

Nio  

Nio (NIO) just lately launched its 3rd-quarter print as mixed success. Although it conquer earnings estimates, the firm’s fourth-quarter steering was extra conservative than was anticipated. The current road blocks struggling with the automaker contain source chain constraints and a companywide producing restructuring, whilst Vijay Rakesh of Mizuho Securities believes these difficulties will only impact the around time period.  

Around the long expression, the stock’s future looks shiny, in accordance to Rakesh. The analyst included that the electrical auto market place has been growing in China to the point the market is approaching an “inflection in adoption.”  

Rakesh rated the stock a Obtain and declared a cost goal of $67.  

Over and above China’s borders, NIO has a short while ago expanded to Norway, solidifying its arrival to its subsequent goal sector. The European introduction was a key milestone for the corporation to complete, with entry to the U.S. future on its checklist.

Furthermore, Rakesh was inspired by Nio’s developments in battery tech, which could present for lessen creation expenditures. In addition, the business has been innovating on its assisted driver units, which he believes will serve as a catalyst for progress.  

Rakesh is rated by TipRanks as No. 30 out of in excess of 7,000 money analysts. His stocks rankings have resulted in achievements 79{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of the time, and they have returned an common of 53.7{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} for each rating.  

monday.com 

The previous calendar year and a fifty percent has been wildly thriving for cloud-based mostly company management firms like monday.com (MNDY). The computer software firm benefited from the necessity for crystal clear digital interaction inside of corporations, and it appears its momentum has not nonetheless cooled off.  

Bhavan Suri of William Blair & Business wrote that MNDY “massively conquer consensus estimates across all essential metrics,” and is now properly poised for continued upside. He additional that the firm has “very best-in-class” profits productivity and has seen encouraging adoption with far more productive market place gamers.  

Suri rated the inventory a Buy, but he did not deliver a selling price goal.  

The analyst outlined that monday.com’s revenues outpaced its hefty investments in sales and analysis, and hence the corporation now has a leverageable stability sheet. He expects far more market share wins for the firm in the lengthy expression as it carries on to execute on sturdy business enterprise functionality.  

Latest share selling price volatility is most probable owing in portion to uncertainty foremost up to the firm’s earnings connect with, as perfectly as an expiration of a lock-up in shares. If the steep declines in share rate are unrelated to its essentially audio organization, Suri stated this presents an eye-catching entry or getting chance for prolonged-expression traders.  

TipRanks ranks Suri No. 71 out of much more than 7,000 professional analysts. His inventory picks have been accurate 73{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of the time, and his rankings have averaged returns of 66.1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.